Insurance Bond

gt568

My elderly and not terribly healthy, recently widowed (6 months ago) mother has what I understand to be an investment that is an "insurance bond" that her and my late dads lives were insured with.  I think when she passes the value pays out, or at least that is what the company told me when I informed them of Dad passing.  I'll be frank this type of thing isn't something I'm terribly clued up on.

Now clearly in the current climate the value has dropped significantly in the last 6 months and Mum is very worried about this.  Now I understand the advice is generally to ride out these events with investments, but it isn't my money and I can't say she'll be around for the long term sadly.  She wants to convert it to cash.

So my question is simple, can she just cash this in?  Are there any pitfalls I should warn her about?  The investment is 12 years old.

dunstonh

Now clearly in the current climate the value has dropped significantly in the last 6 months

It shouldn't have.  Most people are either back in surplus or getting close to where they were before the coronavirus.     You may wish to check again.

Mum is very worried about this.

The CV market falls were only the third largest drop in the last 20 years.   Your mum went through bigger losses in 2008/9.  So, what is different now?

So my question is simple, can she just cash this in?  Are there any pitfalls I should warn her about? 

Why would she want to cash it in?    The wrapper is just a container for the investments.  The investments can be altered without changing the wrapper.    If she surrenders the policy, then it could create a tax charge depending on her tax position.  Also, if she is on means tested benefits, then she could have these reduced or taken away (investment bonds are disregarded for means tested benefits - such as pension credits/UC, long term care etc).

I suspect you are working on out-of-date valuations and that could be leading to poor decision making.  So, check again.

gt568

dunstonh said:

Now clearly in the current climate the value has dropped significantly in the last 6 months

It shouldn't have.  Most people are either back in surplus or getting close to where they were before the coronavirus.     You may wish to check again.

Mum is very worried about this.

The CV market falls were only the third largest drop in the last 20 years.   Your mum went through bigger losses in 2008/9.  So, what is different now?

So my question is simple, can she just cash this in?  Are there any pitfalls I should warn her about? 

Why would she want to cash it in?    The wrapper is just a container for the investments.  The investments can be altered without changing the wrapper.    If she surrenders the policy, then it could create a tax charge depending on her tax position.  Also, if she is on means tested benefits, then she could have these reduced or taken away (investment bonds are disregarded for means tested benefits - such as pension credits/UC, long term care etc).

I suspect you are working on out-of-date valuations and that could be leading to poor decision making.  So, check again.

To answer some questions....

1. In 2008 my father did all their finances, it's only since his death that she has taken an interest.

2. She isn't on any means tested benefits.

3. In January the statement came stating the policy was worth "x" amount.  The statement arrived today at it stated it was worth 7k less, hence her jitters.

Bobziz

What was the date of the valuation ?

Albermarle

What % of the total is £7K ?

gt568

Bobziz said:

What was the date of the valuation ?

4 June....

gt568

Albermarle said:

What % of the total is £7K ?

Less than 10.

dunstonh

The statement arrived today at it stated it was worth 7k less, hence her jitters.

Most statements going out at the moment have valuation dates back in early April.   Just after the low point.      Hence why you need to obtain a current valuation.

£7k less may be a large amount but it may be a small amount.  e..g £7k down on £100k is a very small amount.   £7k down on £20k is a very large amount.  So, what is the balance?

2. She isn't on any means tested benefits.

Will that be the case in future? i.e. care home potential?

Bobziz

gt568 said:

Bobziz said:

What was the date of the valuation ?

4 June....

Is this definately the date of valuation rather than the date of the letter ?

gt568

Bobziz said:

gt568 said:

Bobziz said:

What was the date of the valuation ?

4 June....

Is this definately the date of valuation rather than the date of the letter ?

I see where you are coming from and I can't say for sure.  I assumed that the date of the letter was the effective valuation date.  As I said this is not an area I'm familiar with, I'd have to check.

dunstonh

I assumed that the date of the letter was the effective valuation date. 

Not a safe assumption. Most statements arriving in the last week or two are using early April as the valuation date.